How distributors help deepen MF mkt

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The investing landscape is slowly experiencing a paradigm shift from traditionally used products such as fixed deposits to mutual funds. The mutual fund industry is witnessing an exponential surge with the mutual fund AuM, expanding from a mere 1.01 lakh crore in March 2002 to 39.42 lakh crore in March 2023 (AMFI, 2023). These developments signify a substantial shift in investor preferences and highlight mutual funds’ expanding influence and importance in the investment landscape.

Mutual fund distributors have consistently proven essential to investors by guiding and educating them to make the right investment decisions. The mutual fund distributors have played a key role in bringing new investors to the industry and by encouraging the savings and SIP culture in the investors. They play a crucial role in handholding investors during market volatility, guiding them to make rational choices.

Despite witnessing substantial growth, the mutual fund industry in India continues to have significant under-penetration when compared to its foreign counterparts. India’s AUM to GDP ratio stands at just 17% compared to the world average of 75% (AMFI & World Bank, 2021). The number of mutual fund distributors at around 1.31 lakh, averaging less than one distributor per 10,000 people is also very low given the demographic diversity and the geographic vastness of India (AMFI, 2023).

These facts build a compelling case of the essential role played by a distributor in enabling the financial participation of the masses in the growth story of India. The challenge of bridging this gap also can be seen as an immense potential for mutual fund distributors as a fulfilling and promising career opportunity, especially for the nation’s youth.

Let’s delve deeper into the ways a distributor can shape the future of the industry while also reshaping the investing experience for investors as well.

1) Emergence of Need-Based Investment Practice – With growing awareness, and the emergence of digital tools and algorithms, we see this practice of need-based investing becoming more prevalent in the industry as opposed to just the risk-profile-based investing being primarily practised today. This should emerge as an exciting investor–friendly change in how people will invest in the future with the help of mutual fund distributors.

2) Going Digital in Customer Awareness & Acquisition – We see distributors going digital and making more use of social media and tech platforms to spread awareness, brand themselves, facilitate digital onboarding and offer all distribution-related services. The pandemic saw a large number of distributors also connect digitally with clients and hold one-on-one client meetings and even group client meets for large audiences. Today, a distributor can essentially acquire and service any investor from any part of India and even beyond.

3) Handling behavioural biases – Mutual fund distributors can guide investors to navigate through their behavioural biases and invest consistently to fulfil long-term financial needs. In future, we will increasingly see more and more mutual fund distributors realise the impact they can create in the financial journey of the investor and evolve their own practices to better shape investor behaviour.

4) Building Digital Experience for Investors -The mutual fund distributor can and should be able to offer a complete experience to investors, including making online transactions, portfolio tracking, viewing the progress of investment goals, getting portfolio insights and so on. This can be further extended to customer servicing and handling complaints.

In brief, mutual fund distributors will continue to play the crucial role that they have and are playing in the industry today. Given the under-penetration of mutual funds in India with the kind of diversity and disparity we have in terms of wealth, financial literacy, and digital capabilities, that last-mile connectivity, the comfort and confidence that a mutual fund distributor can provide, will make the difference for the millions of future investors of mutual funds in India.

Apart from spreading financial inclusion and literacy, we also see more tech and digital experiences being built around everything that a mutual fund distributor is doing today. We see tech and eco-system evolve to add capabilities, and capacities that help mutual fund distributor build, operate and scale their practice in future. Apart from the digital experience, we also see mutual fund distributors aligning themselves and becoming more sensitive to investors’ needs and expectations and playing a greater role in impacting the financial success stories of their investors.

The author is Chief Executive Officer, NJ Wealth. Views are personal